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Corporate Governance

Corporate Governance statement

Chairman’s Overview

Your Board is responsible for the long-term success of Ricardo and the delivery of long-term value for all its shareholders.

We are committed to the highest standards of corporate governance to ensure that we have the appropriate safeguards in place to support the strategic development of Ricardo. In our day-to-day operations we ensure that these governance standards support and protect the Ricardo business.

The Nomination Committee supervises all recruitment processes and has during the year increased its focus on succession planning in conjunction with the executive team.

The Remuneration Committee supports our challenge in retaining and rewarding our talented staff and continues to develop policies and targets to achieve this.

The Audit Committee plays a substantial role in ensuring appropriate governance and challenge in our risk and assurance processes.

We believe that good governance ultimately produces a better business and supports long-term performance.

During the year we undertook a review of our Annual Report format in response to calls for enhanced reporting of governance processes. We believe that the pages that follow show that we have embraced greater transparency in our reporting, with less reliance on boilerplate disclosures.

We welcome the additional provisions of the UK Corporate Governance Code 2012 and have gone some way to comply with a number of these before formal requirement to do so in 2014.

Michael Harper


UK Corporate Governance Code

The Board confirms that it has complied with the provisions of the 2010 version of the UK Corporate Governance Code (“the Code”) throughout the year ended 30 June 2013. In addition, Ricardo took steps to comply with the changes contained in the 2012 version of the Code within the required timeframe.

Both versions of the Code and associated guidance are publicly available on the Corporate Governance page of the Financial Reporting Council’s website,

The Board

The role of Ricardo’s Board

Our role is to provide entrepreneurial leadership and we are collectively responsible for the long-term success of Ricardo.

We set strategy and oversee its implementation by the executive team. We assess business opportunities and seek to ensure that appropriate controls are in place to assess and manage risk. We are responsible for reviewing the executive team’s performance and we oversee senior-level succession planning within the Group.

We have agreed a schedule of matters reserved for our approval which are not delegated to the executive team. These include, amongst other things, matters relating to strategy, acquisitions and disposals, capital expenditure, financial results and overseeing systems of internal control, governance and risk management. The full schedule of matters reserved for our decision, along with the terms of reference of our committees, are available on our website (

We delegate certain responsibilities to our Nomination, Audit and Remuneration Committees. These committees are made up of independent non-executive directors (save for the Nomination Committee which includes the Chief Executive Officer) and all play a key role in supporting us.

During the year, we approved a number of significant strategic developments and investments, including the acquisition of certain assets and business of AEA Europe, as detailed elsewhere in this Report. In addition, we approved the investment of significant capital funding for the design, development and build of the Vehicle Emissions Research Centre on its Shoreham site. Ricardo has been awarded additional funds from the UK Government Regional Growth Fund to support this project.

We spent considerable time focusing on the Group strategies and reviewing progress against respective objectives. We held three strategy meetings during the year, the first a four day session, held in October 2012 which gave us the opportunity to visit our China operation based in Shanghai. In addition to meeting the Ricardo China team and reviewing its strategy, we covered considerable mileage visiting clients to gain a greater understanding of their respective ambitions and ways in which Ricardo could assist them in their individual projects and strategic goals.

In January 2013 we held a Strategy Review update with Managing Directors of each of our divisions, focusing on the Ricardo Strategic Consulting, German, US and Ricardo-AEA businesses. In addition we reviewed client relationship strategy and tested progress on cost management for the Group.

In April 2013 we met in Germany, a regular annual visit, and took the opportunity to meet employees and gain greater insight into a number of key client projects. In addition, we conducted a thorough review of the Ricardo Germany strategy.



Committee meetings




Number of meetings in the year





Number attended by each member





Michael Harper





Hans Schöpf





David Hall





Ian Lee





Peter Gilchrist





Dave Shemmans



Mark Garrett


Paula Bell*



Bill Jessup** 

* Paula Bell resigned on 20 May 2013.

** Bill Jessup joined on 11 March 2013 and resigned on 30 June 2013.


Board meetings, scheduled in accordance with the annual timetable, take place eight times a year and otherwise as required. Details of attendance at scheduled Board and Committee meetings are shown in the table above.

Our agenda focuses on driving Ricardo’s strategy, developing strong leadership and succession planning, monitoring risks and protecting our strong relationships with clients, employees and other stakeholders.

Our agendas allow time for debate and long-term strategic discussion. Our forward planner gives Board members visibility of what is on future agendas for their consideration.

Board composition

As at 30 June 2013, our Board comprised five non-executive directors and three executive directors as follows:

Michael Harper Non-Executive Chairman

Dave Shemmans              Chief Executive Officer

Bill Jessup                       Interim Group Finance Director

Mark Garrett                   Chief Operating Officer

David Hall                       Independent Non-Executive Director, Chair of Remuneration Committee and Senior Independent Director

Ian Lee                           Independent Non-Executive Director and Chair of Audit Committee

Hans-Joachim Schöpf       Independent Non-Executive Director

Peter Gilchrist                 Independent Non-Executive Director

The wide-ranging experience and backgrounds of the non-executive directors enable them to debate and constructively challenge management in relation to both the development of strategy and the performance of the Group.

All non-executive directors are considered by the Board to be independent and our Chairman was considered to be independent upon appointment. They have never been employees of the Company nor have they participated in any of the Company's share schemes, pension schemes or bonus arrangements. They receive no remuneration from the Company other than the directors' fees disclosed and travel expenses. They all held office throughout the year with the exception of Bill Jessup who joined us on 11 March as Interim Group Finance Director, following Paula Bell’s resignation announcement and subsequent departure on 20 May 2013. Bill stood down from the Board on 30 June. Ian Gibson took over as Chief Financial Officer from 1 July 2013.

Non-executive directors are appointed for specified terms of three years which can be extended by agreement provided that the individual’s performance continues to  be effective. In accordance with the Company’s Articles of Association and the Code, all directors will retire at the Annual General Meeting in November 2013 and, being eligible, will offer themselves for re-election. We believe that each of the directors should be re-elected by shareholders because each continues to be effective and demonstrates commitment to the role that each of them performs. 

Appointments to the Board

We recognise our responsibility for planned and progressive refreshing of the Board. There is a formal and transparent procedure for the appointment of new directors, the primary responsibility for which is delegated to the Nomination Committee.

Corporate Governance statement


The Board is committed to promoting equality of opportunity for all employees and job applicants free from all forms of discrimination. Ricardo is an inclusive employer and values diversity of skills, knowledge, background, industry and international experience and gender in its employees and aims to recruit the best person for the role in all its positions Group wide.

Women make up approximately 19% of the workforce in the Group worldwide and the average percentage of women represented on the boards of the Group companies is 20%.

Induction of Directors

There is a written framework for the full, formal and tailored induction of new directors.

Ian Gibson’s induction included site visits, meetings with senior management and advisers and the provision of corporate documentation to facilitate his learning of our business, its operations, key markets and risks. As Bill Jessup had been Interim Group Finance Director previously, his induction involved the provision of corporate documentation and updating him on the business’ recent activities.

Director training

Training for directors is available as required and is provided mainly by way of external courses, briefing from specific consultants and online computer-based training. The Company Secretary provides regular updates on the legal and regulatory environment that the directors should be aware of.

Support and development

Our Chairman is responsible for ensuring the directors receive accurate, timely and clear information, with Board and Committee papers being circulated sufficiently in advance of meetings.

The Board and its Committees are kept informed  of corporate governance and relevant regulatory developments as they arise through the Company Secretary, our auditors and remuneration consultants.

In addition, we keep ourselves informed about the Group's activities through a structured programme of presentations from each of the businesses within the Group and from a number of Group functional leaders. During the year under review we received presentations from the Group IT Director, the Chief Technology and Innovations Officer and specific presentations on key projects for the business.

Directors are updated continually on the Group’s business with monthly performance packs and by means of additional presentations on matters including insurance, treasury, and health, safety and environmental risk management.

In the furtherance of their duties or in relation to acts carried out by us or the Company, each director has been informed that he or she is entitled to seek independent professional advice at the expense of the Company.

In accordance with the Company’s Articles of Association, directors are granted an indemnity from the Company in respect of liabilities incurred as a result of their office, to the extent permitted by law. In respect of those liabilities for which the directors may not be indemnified, the Company maintained a directors’ and officers’ liability insurance policy throughout the year. Although their defence costs may be met, neither the Company’s indemnity nor insurance provides cover in the event that the director is proved to have acted fraudulently or dishonestly.

Each director has access to the advice and services of the Company Secretary as and when required. The Company Secretary is appointed and can only be removed by the Board.

Board evaluation

We conduct an evaluation of our activities annually, facilitated by the Company Secretary.

The determination of whether or not to conduct an external review is considered annually by the Nomination Committee. Following consideration of the Committee’s recommendation we decided to continue with the internal review of our effectiveness this year.

The aim of the review is to check progress against the issues identified in last year’s evaluation and identify any new issues.

Our approach calls for the completion of a questionnaire by all directors on the processes and behaviours of the Board and its Committees including, amongst other things, the quality of leadership and setting of objectives, the appropriateness of our skill level and how well our members work and communicate together and with others. In addition, each director completes a separate questionnaire concentrating on his or her individual input to the Board and his or her specific training requirements.

Additionally, Ricardo’s auditors and remuneration consultants provide an evaluation on the performance of our Audit and Remuneration Committees respectively.

Following completion of these questionnaires, Michael Harper conducted one-to-one interviews with each director and the Company Secretary while David Hall,  our Senior Independent Director, conducted one-to-one interviews with the directors, in the absence of Michael Harper, on his performance as Chair of the Board.

The results of the evaluation were analysed and reviewed by the Board in conjunction with the progress made on the previous year’s objectives. In 2012, some of the Board’s objectives included improving quality of earnings and shareholder value, focusing on key risks and mitigation plans and maintaining focus on talent management and succession planning.

Overall the conclusion from our evaluation and appraisal process was positive, with each Director actively contributing to the effectiveness of the Board and the Committees of which he or she is a member.

Chairman and Chief Executive Officer and Senior Independent Director

The division of responsibilities between our Chairman, Michael Harper, and the Chief Executive Officer, Dave Shemmans, is documented, clearly understood and has been approved by us.

Michael Harper's primary responsibility is leading and ensuring the effectiveness of the Board and setting its agenda.

Dave Shemmans has direct responsibility for the Group on a day-to-day basis and is accountable to the Board for the financial and operational performance of the Group. Dave Shemmans chairs the Executive Committee, which meets formally at least three times each year and which includes the executive directors of the Board.

The Executive Committee is primarily responsible for developing and implementing our corporate strategy and policy. The minutes of the Executive Committee meetings are circulated to, and considered by, the Board.

The responsibilities of the Senior Independent Director, David Hall, include the provision of an additional channel of communication between our Chairman and the non- executive directors. In addition David Hall provides an additional point of contact for shareholders should they have concerns that communication through normal channels has failed to resolve or where these contacts are inappropriate.


The Board has an Audit Committee, Remuneration Committee and a Nomination Committee. Written terms of reference for each Committee are reviewed each year and are available on our website, or on request from the Company Secretary.

Remuneration Committee


The Remuneration Committee, which is chaired by David Hall, comprises the independent non-executive directors, Ian Lee, Hans-Joachim Schöpf, Peter Gilchrist and Michael Harper.


During the year, the Committee had five scheduled meetings. The work of the Committee, including the Chairman’s Overview, is described in the Directors’ Remuneration Report on pages 48 to 60. The Directors’ Remuneration Report is the subject of a vote by shareholders at the 2013 Annual General Meeting.

Nomination Committee

Chairman’s overview

The Committee continues to focus on strengthening and balancing the range of skills, experience and diversity on the Board and its Committees.

Ian Gibson joined us as Chief Financial Officer on 1 July 2013. A member of the Institute of Chartered Accountants in England and Wales, Ian Gibson is a highly experienced finance professional with almost thirty years’ commercial experience, most recently as Chief Financial Officer of Cable & Wireless Worldwide plc. Further details concerning Ian’s appointment are set out below.

Both Peter Gilchrist’s and my appointments are due for review this year. Peter will have completed his first three- year tenure in December 2013 and it is the Committee’s recommendation to renew his appointment.

I was appointed as non-executive director in 2003 and appointed to the role of Chairman of the Board in November 2009. The Nomination Committee, in my absence, recommended renewal of my appointment.

We have set out opposite the length of service of each of the directors and it is the intention of the Committee  to appoint a new non-executive director to ensure we are appropriately supported and strengthened for the future.

Michael Harper

Chairman of the Nomination Committee


The Nomination Committee, which is chaired by Michael Harper, comprises the independent non-executive directors Ian Lee, Hans-Joachim Schöpf, David Hall and Peter Gilchrist together with our Chief Executive Officer, Dave Shemmans.

The Committee has one scheduled meeting per year, which is supplemented by informal meetings between Committee members.


The Committee:

•             evaluates the balance of skills, knowledge and experience on the Board;

•             monitors the leadership needs and succession planning of the Company;

•             considers the training needs of the executive and non- executive members;

•             regularly reviews the structure, size and composition of the Board; and

•             makes recommendations to the Board for executive and non- executive appointments.

Before such recommendations are made, descriptions of the roles and skills required in fulfilling these roles are prepared for particular appointments. To attract suitable candidates, appropriate external advice is taken and interviews conducted by at least two members of the Nomination Committee to ensure a balanced view.

The search for our Chief Financial Officer during the year was managed with the assistance of recruitment consultants Spencer Stuart, who have signed up to the voluntary Code of Conduct  for executive search firms. Spencer Stuart provided a shortlist of candidates who were interviewed by Dave Shemmans, Ian Lee and Michael Harper before it was agreed to offer the role to Ian Gibson. Ian has undertaken an extensive induction programme to ensure a rounded understanding of the business and our ambitions. Ian joined the Board as Chief Financial Officer with effect from 1 July 2013. Spencer Stuart have no other connection with the Company.

The Committee recognises the need for diversity, in its broadest sense, when considering the composition of the Board. Diversity in all its aspects, including gender diversity, continues to be important to the Company. However, the wider objective of appointing the best person for the role, taking into account not only gender but qualifications and experience, led to the Committee’s recommendation for Ian Gibson's appointment.

The Board’s policy on diversity is set out on page 39 together with details of female representation elsewhere within the Group.

The Committee has spent time looking at succession planning for the Executive Director team as well as for the Board over the medium term. We have also discussed talent management and succession planning for the top managers in the business.

When an appointment of a non-executive director is made, a formal letter is sent setting out clearly what is expected regarding time commitment, committee membership and involvement outside Board meetings. The chosen candidate is required to disclose to the Board any other significant commitments before the appointment can be ratified.

The Chairman of the Committee is the Chairman of the Board, Michael Harper, except when a new Chairman of the Board is being sought, when it is the Senior Independent Director, David Hall.

Non-executive directors, including the Chairman, are subject to rigorous review when they continue to serve on the Board for any term beyond six years.

Succession Planning


Date of Appointment


Michael Harper

June 2003

10 years

David Hall

February 2006

7 years

Ian Lee

August 2008

5 years

Hans-Joachim Schöpf

July 2009

4 years

Peter Gilchrist

December 2010

3 years

Dave Shemmans

April 2005

8 years

Mark Garrett

July 2008

5 years

Ian Gibson

July 2013



Audit Committee

Chairman’s overview

As a Committee we are keen to ensure that all key management of the business have fully considered the risks which their business areas face and that these risks are being effectively managed. We focus on the risk profiles for each business unit and review what actions these units are taking or processes they have in place to manage or mitigate their risk. We receive reports from the Head of Internal Audit on the risk and project management processes and outcomes, the planned scope and results of internal audits, and the results of the review of internal control processes.

During the year the Committee reviewed the FRC’s “Effective Company Stewardship: Enhancing Corporate Reporting and Audit”. It has proposed and the Board has agreed that the Committee shall provide the Board with the advice it needs to make the fair, balanced and understandable statement annually, each September, following its review of the draft Annual Report and Accounts.

In addition the Committee recognises that, as it does today, it will continue to keep significant issues under review and report accordingly.

Each year, the Committee reviews the scope and planning for the external audit, and receives reports on the auditors' work. We consider the key audit and accounting issues and their resolution. This includes a review of the accounting for key contracts, accounting for goodwill, accounting for taxation, accounting for warranty provisions, the appropriateness of the going concern basis for the preparation of the accounts and any internal control matters arising from the audit.

This year, amongst other things, the Committee paid particular attention to the accounting for the acquisition of the European business and certain assets of AEA, the accounting for the German goodwill asset, where after careful review the Committee considered that no impairment was required, and the accounting for deferred tax assets.

The FRC has concluded that more regular tendering would be a robust way to benchmark the quality, expertise and independence of the auditor. PriceWaterhouseCoopers LLP (“PwC”) have been Ricardo’s auditors since 1990. Both the Committee and executive management have annually reviewed the performance of our auditors, including the use of surveys of our staff assessing audit team performance, and we have been completely satisfied by their performance.

In addition, the PwC Audit Partner is due to step down in September 2013, after five years. Four candidates have been submitted by PwC after discussion with myself for review by myself and Dave Shemmans and a new Audit Partner has been selected. Due to the satisfactory performance of PwC and the replacement of the Audit Partner for next year on rotation, the Committee has recommended the audit contract should not be put out to tender in this financial year and the Committee will keep this under review annually.

In recent years, some shareholders have adopted voting policies that a Chairman of the Board should not be a member of the Audit Committee regardless of FTSE position and a number of shareholders have highlighted this with Ricardo. Following discussions between Michael Harper and myself, Michael has volunteered to stand down as a member of the Audit Committee. I have extended a standing invitation to Michael to attend all future Committee meetings as his experience and advice are invaluable to us in the discharge of our duties to the Board and the Company.

Ian Lee

Chairman of the Audit Committee


The Audit Committee, which is chaired by Ian Lee, comprises the independent non-executive directors Hans-Joachim Schöpf, David Hall and Peter Gilchrist. Michael Harper stood down from the Audit Committee in February 2013, following consideration of shareholder voting guidance on the merits of the Chairman of the Board’s membership of the Committee. The executive directors, Michael Harper and the Company’s external auditors have standing invitations to attend all Committee meetings. In addition, the Committee meets with our external auditors and the Head of Internal Audit without management being present at least once a year.

The Committee has three scheduled meetings per year and ad hoc meetings as required. In the last year four meetings were held.


The Committee is established by, and is responsible to, the Board. Its main responsibilities are:

•             To monitor and be satisfied with the truth and fairness of the Company’s financial statements before submission to the Board for approval, ensuring their compliance Corporate Governance statement with the appropriate accounting standards, the law and the Listing Rules of the UK Listing Authority

•             To review the Company’s internal financial controls and internal control and risk management systems, and to review the effectiveness of the internal audit function and ensure that it is adequately resourced

•             To make recommendations to the Board in relation to the appointment and re-appointment of the external auditors and their remuneration, before appointment or re-appointment by the shareholders in general meeting, and to review the scope and planning of the audit and be satisfied with the auditors’ independence, objectivity and effectiveness on an ongoing basis

•             To implement the policy relating to any non-audit services performed by the external auditors

Ian Lee meets regularly with the Head of Internal Audit  and executive management on matters of risk, controls, audit and accounting.

The Audit Committee receives reports from management and internal audit on the effectiveness of the system of internal controls and risk management systems. The Committee also receives from the external auditors a report of matters arising during the course of the audit which the auditors deem to be of significance for the Audit Committee’s attention.

The Committee meeting in September carried out a full review of the year-end financial statements and of  the audit, using as a basis reports prepared by the Chief Financial Officer and the external auditors and taking into account any significant accounting policies, any changes to them and any significant estimates or judgements.

Questions are asked of management of any significant or unusual transactions where the accounting treatment could be open to different interpretations. A similar, but less detailed review is carried out in February when the Interim Report is considered.

The Committee also reviewed the processes to assure the integrity of the Annual Report and Accounts, in particular that the information presented in the report, when taken as a whole, is fair, balanced and understandable and contains the information necessary for shareholders to assess the Company’s performance, business model and strategy.

The Audit Committee is authorised by the Board to seek and obtain any information it requires from any officer or employee of the Company and to obtain external legal or other independent professional advice as is deemed necessary by it.

Internal Audit

The internal audit function is centrally managed and is led by suitably skilled staff from head office or parts of the business independent from the business or function being audited. It is resourced by staff from around the Group with suitable skills, experience and independence for the area they are auditing.

Where relevant, external specialists are used to supplement internal resources where specialist knowledge is required. This approach not only ensures independence in the process but also the relevance of the recommendations and the sharing of best practice around the Group.

As part of the annual process the Committee’s review includes:

•             The internal audit process, the audit plan and resources;

•             The internal audit reports and management’s response to the findings and recommendations;

•             Meetings with the Head of Internal Audit without management being present and the Head of Internal Audit is invited to attend audit committees where considered appropriate.

The Audit Committee considers that the internal audit process is an effective tool in the overall context of the Company’s risk management system.

Whistleblowing, Ethics and Fraud Prevention

Internal audit scope includes a review of compliance with Group policies, including on established whistle-blowing, ethics (including Bribery Act related matters) and fraud prevention policies.

The whistle-blowing policy is designed to deal with concerns, which must be raised without malice, in relation to specific issues which are in the public interest and which fall outside the scope of other Company policies and procedures. The whistle-blowing policy is overseen by Ian Lee, and has been reviewed during the year and is promoted via the staff briefing process and the Company’s intranet site.

There are no matters to disclose during the year under review.

The Committee has completed its review of the effectiveness of the Group’s systems of internal control during the year and up to the date of the Annual Report, in accordance with the requirements of the revised Turnbull Guidance on Internal Control, published by the FRC. The Committee confirms that no significant failings or weaknesses were identified in the review for 2012/13.

External Audit

The external auditors are required to give the Committee information about policies and processes for maintaining their independence and compliance with requirements regarding the rotation of audit partners and staff.

The Committee considers all relationships between the external auditors and the Company to ensure that they do not compromise the auditors’ judgement or independence, particularly with the provision of non-audit services where  a policy relating to these has been agreed by the Board.

Essentially the external auditors would be excluded from carrying out non-audit services if they are put in the position of auditing their own work, making management decisions for the Company, if a mutual interest between the Company and the auditors is created, or if the auditors take on the role of an advocate for the Company.

Our policy in respect of services provided by the external auditors is as follows:

Audit-related services

The external auditors are invited to provide services which,  in their position as auditors, they must or are best placed to undertake. This includes review of the interim results and any other review of the accounts for regulatory purposes; assurance work related to compliance and corporate governance, including high-level controls; work in connection with listing particulars and prospectuses (if required); regulatory reviews or reviews commissioned by the audit committee; and accounting advice and reviews of accounting standards.

Tax consulting

In cases where they are best suited, we use the external auditors provided that such advice does not conflict with the external auditors’ statutory responsibilities and ethical guidance.

General consulting

There may be occasions when the external auditor is best placed to undertake other accounting, advisory and consultancy work on behalf of the Company due to their in-depth knowledge of the Company. However, the following are specifically prohibited:

•             Work related to accounting records and financial statements that will ultimately be subject to external audit

•             Management of, or significant involvement in, internal audit services

•             Secondments to management positions that involve any decision-making

•             Any work where a mutuality of interest is created that could compromise the independence of the external auditor

•             Any other work which is prohibited by UK ethical guidance

If the external auditors carry out non-audit services and the cost of these services is estimated to exceed £50,000 or in aggregate more than 100 percent of the audit fees, prior approval by the Committee is required.

The split between audit and non-audit fees for the year ended 30 June 2013 and information on the nature of non-audit fees appear in note 4 to the accounts.

Both the Board and the external auditors have for many years had safeguards in place to avoid the possibility that the auditors’ objectivity and independence could be compromised.

The Committee has considered the effectiveness of the external auditors, which included obtaining a report on the audit firm’s own internal quality control procedures, consideration of the audit firm’s annual transparency report and review of an internal questionnaire completed by senior and relevant Finance staff.

In addition, the Committee considered the risks associated with the audit firm withdrawing from the market, the proposed fee structure and the audit engagement terms for the forthcoming year. The Audit Committee has recommended to the Board that the reappointment of PricewaterhouseCoopers LLP be proposed to shareholders at the 2013 Annual General Meeting.


The Board has overall accountability for ensuring that  risk is effectively managed across the Group and, on behalf of the Board, the Audit Committee reviews the effectiveness of the Group's risk management processes.

We consider that effective risk management is critical to the achievement of Ricardo’s strategic objectives and the long-term sustainable growth of our business. That said, such systems are designed to manage rather than eliminate the risk of failure to achieve Ricardo’s objectives and can only provide reasonable assurance against material misstatement of loss.

Risks are reviewed by all business areas on a half-yearly basis and measured against a defined set of likelihood and impact criteria. This is captured in consistent reporting formats, enabling Internal Audit and Risk to consolidate the risk information and summarise the key risks in the form of the Group Risk Profile ahead of it being submitted to the Board for final approval.

As part of the risk management process, directors and senior managers are required to certify on a bi-annual basis that they have established effective controls to manage risk and to comply with legislation and Group procedures and disseminated Group policies.

Ricardo’s internal control and monitoring procedures include:

•             Clear and understood responsibility on the part of the line and financial management for the maintenance of good financial controls and the production of accurate and timely management information

•             Control of key financial risks through clearly laid down authorisation levels and appropriate segregation of accounting duties, the control of key project risks through project delivery and review systems and the control of other key business risks via a number of processes and activities recorded in the Group risk register

•             Detailed monthly forecasting and reporting of trading results, balance sheets and cash flow, with regular review by management of variances from budget

•             Reporting on compliance with internal financial controls and procedures by Group Internal Audit

•             Review of reports by external auditors

To ensure our risk process drives improvement across the business, we monitor ongoing status and progress of key action plans against each risk on a half-yearly basis. Risk is a key consideration in all strategic decision-making at Board level.

Corporate Governance statement

Principal Risks and Uncertainties

In common with all businesses, we face risk and uncertainties on a daily basis. It is the effective management of these that places us in a better position to be able to achieve our strategic objectives and to embrace opportunities as they arise.

The Group has risk management processes in place for projects and other business risks. Contract risks are managed through a project management process which is closely linked to financial performance measurement. Non-contract risks are controlled by the leaders of global product groups, Group functions and divisional managing directors. These non-contract risks are analysed and reviewed regularly and are recorded in the Group’s risk register in liaison with the Group’s Risk Manager, who has an independent reporting line to the Chairman of the Audit Committee. The Group’s approach to risk management is to identify key risks early and to remove, control or minimise the impact of them before they occur.

Risk appetite is managed by a number of internal controls via authority limits as well as setting excesses on insurances.

We comply with the Code by:

•             Classifying risks as either strategic or operational and as either internally or externally driven; they are evaluated on a gross and net risk basis

•             The Chief Executive Officer reviewing higher-rated risks on the register with the Board twice each year

We set out below details of our principal risks, the mitigating activities in place to address them and additional actions implemented to further reduce net risk to the Group. It is recognised that the Group is exposed to a number of risks, wider than those listed. Additional risks and uncertainties not presently known to management, or currently deemed to be less material, may also have an adverse effect on the business. The acquisition of Ricardo-AEA did not materially change the risk profile of the business.

Customers and markets

The Group is largely dependent on a dynamic marketplace which is exposed to many external pressures, competition and structural change caused by global economic, cost-base, environmental and capacity concerns.


This could cause changes in client product plans or government policy leading to delays in the placement of orders, the redirection, delay or curtailment of contracts or slippage in payments. As the market recovers, the precise timing of order receipt and rate of ramp-up of project workload delivering the subsequent revenue, profit and cash streams may give some volatility in our ability to forecast future performance.


These risks are mitigated by the strategy of broadening the base of the business to reduce exposure to any one specific client, territory or market sector, and the success of this strategy is measured by the key performance indicators for client dependency and sector dependency shown on page 16 and by the geographic spread disclosed in the note 3 to the accounts. In the event of a sudden downturn, contingency plans are quickly deployed to minimise the short-term performance effects and preserve cash whilst protecting the long- term needs of the stakeholders. The impact of insolvency risk is mitigated by robust working capital management and credit insurance where this is economically available.

Contract performance

The majority of the Group’s revenue arises from fixed-price contracts for engineering and environmental consulting services. The costs and liabilities to complete these contracts may be different from initial estimates, thus reducing or increasing margins and project timescales. In low-volume manufacturing there is a risk of dependency on specialist suppliers or product liability or recall or warranty claims.


Onerous contract terms, failure to perform on contracts, the infringement of the rights of others, or a faulty product could potentially subject the business to a claim from a customer and loss of reputation or reduced opportunity for repeat business or increased costs. On contracts where we exceed planned performance, additional profits may be generated. Failure of production process or product validation could lead to warranty or recall claims. Failure or poor performance of a supplier could disrupt delivery to clients and increase operating costs.


These risks are proactively managed by clearly defined lead qualification, bidding and project management processes, whereby projects are categorised according to their risk level, which in turn dictates the level of approval or review required. Internal procedures are in place to ensure that the

technical content of our output is of good quality and meets client requirements without infringing the rights of others. These processes are subject to continued improvement focus with the central leadership of the Chief Operating Officer and the Director of Engineering and Programmes, and are core to our strategy. Procurement processes are in place to assess critical suppliers and selections are often made with the involvement of the client. In low-volume manufacturing there are rigorous quality assurance processes in place to reduce the risk of product liability, warranty and recall claims.


Ricardo is a business that is knowledge driven and people- led, with a focus on attracting and retaining the best talent. Recruiting, developing and retaining talent and knowledge are essential.


The failure to recruit, develop or retain the very best talent would restrict growth and the execution of the strategy and have an impact on delivery and client relationships.


We are focusing on a model of ‘bringing in and bringing on’ the best talent. We aim to ensure that we actively develop and manage staff to encourage their optimum contribution, encourage mobility, professional development and provide appropriate remuneration and working conditions.


The business is driven by changes in technology to meet the needs of markets, sectors and regulators on varying time scales.


If the Group invests in the wrong technologies it could lose marketplace advantage and business levels could reduce. If there are delays in the implementation of new regulations, which in turn delay client programmes dependent on new technology, the time taken to deliver returns from our R&D programmes may also increase.



Our R&D programmes are developed in consultation with clients and many programmes are collaborative. We use established and proven road-mapping processes to produce these plans.

This creates stronger links to the market and reduces the risk of sudden curtailment. The direction of R&D is regularly reviewed by our Technology Exploitation Board (formerly known as Technology Steering Group), which is chaired by the Chief Technology & Innovation Officer.

Compliance with laws and regulations

The Group’s operations are subject to a wide range of domestic and international laws, regulations and restrictions.


Non-compliance with these laws, regulations and restrictions could expose the Group to fines, penalties or loss of reputation, or result in trading restrictions which could have a material adverse effect on the business.


To mitigate these risks the Group has a number of defined policies and operating procedures, and takes professional advice, where considered necessary, to ensure that employees and others act with the highest ethical standards and within local legal and regulatory requirements. Our Code of Conduct is published on to increase awareness and provide availability to external stakeholders.

Also, the Group’s internal audit programme includes within its remit the review of compliance with applicable legislation and regulations and awareness of key policies. Policies are updated as regulations change and as our knowledge of best practice increases. We aim to anticipate the effects of working in new sectors, particularly defence, which adds to the range of regulations and laws with which we need to comply.

Defined benefit pension scheme

The Group has a UK defined benefit pension scheme which currently has a funding deficit.


Any decline in the value of the pension fund assets, improvement in the life expectancy, long periods of high inflation or future decreases in interest rates could increase the funding deficit and require additional funding contributions in excess of those currently expected.


The current UK funding plan was agreed on the basis of a valuation undertaken at 5 April 2011 and anticipates deficit recovery contributions being made until 2016. The Group also closed the pension fund to future accrual on 28 February 2010. In addition the Group regularly monitors the performance of the pension fund.


The Group can be in a borrowing position, requiring some borrowing from its bankers.


Given the ongoing uncertainty in the banking sector, globally there is a risk of the Group being unable to secure sufficient funds or the cost of funds and facilities being high.


This risk is managed by robust cash management, regular improvement initiatives, monitoring forecast and actual cash flows, maintaining good relationships with the Group’s bankers and ensuring sufficient borrowing facilities are in place at all times to support the Group’s requirements, with additional headroom available to meet possible downside scenarios. The Group has ample facility and covenant headroom. Further details of the Group’s borrowing facilities and other financial risks can be found in note 21 to the financial statements.


Risk Management and Internal Control

Internal Audit and Risk comprises both the Group Risk and Internal Audit function. Whilst Group Risk facilitates and manages the risk process that is ultimately owned by the Board, Internal Audit is accountable to the Audit Committee.

The following examples illustrate how Internal Audit work supports Group Risk whilst driving improvements to our control environment and adding value in core business areas.

•             Project reviews look at a range of risk and process control areas across projects in divisions and identify best-practice techniques which can be shared across divisions, and lessons learned have been applied

•             Selected in-depth process reviews evaluate control risks and efficiency leading to revaluation of risks during the risk review processes

•             Testing of controls and process awareness in our Fraud and Bribery Risk Assessment have led to streamlining our process around the management of intermediaries

Management actions from all of our audits are tracked to completion and the status of these actions is reported to the Audit Committee to ensure that the risks identified are appropriately addressed.

Liquidity and Going Concern

The Company’s policy on funding capacity is to ensure that it always has sufficient long-term funding and committed bank facilities in place to meet foreseeable peak borrowing requirements.

The directors have assessed the future funding requirements of the Company and compared it to the level of long-term debt and committed bank facilities. Further details can be found in note 21 of the Financial Statements.

After completing this work, including reviewing and approving the latest budget, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future.


The Chief Executive Officer and the Chief Financial Officer regularly meet with institutional shareholders to foster a mutual understanding of objectives, answer their questions and to keep them updated on our performance and plans.

These meetings range from one-to-one discussions to group presentations and investor conference calls following our results announcements. Any presentations provided in these meetings are uploaded to our website and comments are fed back to us.

Additionally, the Chairman communicates with key shareholders at least once a year and both the Chairman, the Senior Independent Director and the Chairman of the Audit Committee are available for discussions with major shareholders if required. The Chairman also looks to shareholder groups' annual voting guidelines to better understand their policies on governance and voting.

For an independent view, Investec, the capital markets advisory firm, provides us with regular reviews of major investors’ views on Company management and performance. Surveys

of shareholder opinion are normally carried out following announcements of results and are circulated to the Board.

Ricardo’s AGM

The Notice of Meeting sets out the resolutions being proposed at the Annual General Meeting (14 November 2013 at 10.00am). Last year all resolutions were passed with votes ranging from 99% to 100%. Shareholders unable to attend the AGM are encouraged to vote in advance of the meeting.

The Annual General Meeting (“AGM”) in November 2012 was attended by all directors in office at the time of the meeting. The directors encourage the participation of all shareholders, including private investors, at the AGM and as a matter of policy the level of proxy votes (for, against and vote withheld) lodged on each resolution is declared at the meeting and displayed on the Company’s website.

Ricardo’s website ( contains a wealth of information, including:

•             Latest Ricardo news, Stock Exchange announcements and press releases;

•             Annual Report and Investor presentations.

Compliance Statement

The Board confirms that it complied throughout the year ended 30 June 2013 with all relevant provisions contained in the UK Corporate Governance Code.

On behalf of the Board

Michael Harper
Chairman of the Board 

Ian Lee
Chairman of the Audit Committee

6 September 2013





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